Eric Galbraith says Biba’s stance is clear on the broker commission debate and further regulatory intervention is not needed
Thankfully, what the article portrayed fell a long way short of a true representation of the broking profession or the industry that Biba is proud to represent.
Biba has been involved in the commission disclosure and transparency debate for many years; our activity shaped by our members’ views and needs. Our position on the disclosure of commission to commercial customers is quite clear. Biba has long argued that there is no market failure in this area.
The FSA’s high level Principles for Businesses and the more detailed rules in the Insurance Conduct of Business sourcebook require intermediaries to manage conflicts of interest where they arise and to fully disclose all commissions to commercial customers upon request.
Trade bodies such as Airmic have also campaigned to raise awareness among their membership that they should ask for this information when buying insurance cover.
The comment from Biba’s Steve White that “the number of times that customers actually ask the question [of commission terms] you can count on the fingers of one and and still have enough spare fingers to be rude” was not designed to be disrespectful to customers.
It was in response to comments from Dick Tucker, a fellow compliance professional at broker Layton Blackham, that were made at a recent round table discussion on commission disclosure.
Tucker’s comments set the whole argument in some kind of context when he said: “In the past 12 months we have had three clients that have asked us what commission we earn. They have every opportunity of understanding that we will disclose that commission, yet nobody asks.”
Tucker backs up what Biba has heard anecdotally from our members and their customers. The lack of evidence of commercial buyers asking for this information surely suggests that the process we currently have is as transparent as the customer wants it to be.
Biba went to considerable effort in the late spring to collate the views of a number of its members in response to a questionnaire forming part of the FSA’s forensic review of transparency in the commercial market.
Biba supplied a quantity of data countering the claim that a lack of transparency surrounding broker remuneration has resulted in customer detriment and/or impairing market efficiency. Biba has also met the FSA team conducting the forensic review, and its appointed researchers CRA, where our position was explained robustly and in great detail. These are hardly the actions of an organisation that is anti-regulation and unwilling to co-operate with a regulator.
Biba developed practical member guidance on how to identify and manage conflicts of interest in business back in June 2005. This guidance gives members a clear understanding of the legal and regulatory position concerning conflicts of interest and to offer practical guidance on how best to review, improve and formalise management policies and procedures for managing them.
“Biba is not a regulator, nor a quasi regulator, nor an agent of the FSA. Biba simply does not have the time or resources to enforce these measures
Erica Galbraith, Biba
Biba followed this up with a further paper on how our members might create and implement their own internal conflicts of interest policy in March 2006. These guidelines were developed in response to member’s requests and concerns, which again does not suggest they are burying their head in the sand on this issue.
At our annual conference in May we expressed disappointment at the FSA’s decision to conduct a forensic review of commission disclosure.
Biba argued that this decision represented a backwards step for principles-based regulation, which was inconsistent with the FSA’s desire to regulate through high level principles and to rely on market solutions where appropriate. It was not an attack on the FSA for having the ‘temerity’ to launch a commission disclosure review as certain market commentators would have it.
Biba was particularly disappointed given the detailed work that it had undertaken with the market and the FSA, to develop what we still view to be a workable, industry-led solution for greater transparency.
This solution involved the intermediary recognising and managing potential conflicts of interest properly. This includes having appropriate systems and controls in place to ensure that whenever a commercial customer asks for details of their remuneration they are able to disclose all earnings and changing their terms of business agreement with their commercial customers to include the Biba wording on greater transparency.
Those things will do much to dispel the FSA’s concerns surrounding transparency. That said, what Biba cannot do is force its members to adopt these measures, only encourage and cajole them into seeing that they make good business sense. This is not Biba devolving or relinquishing its responsibilities.
Biba is not a regulator, nor a quasi regulator, nor an agent of the FSA. Biba simply does not have the time or resources to enforce these measures.
Market transparency has increased considerably in the last two years and will carry on doing so. Biba’s dialogue with the regulator in this area will continue through regular structured meetings with senior FSA officials.
Biba can only hope that the additional evidence to emerge from the forensic review will finally dispel the belief held by some that the market is incapable of achieving greater transparency for commercial customers through its own efforts.
Biba is not calling on the FSA to leave the industry to its own devices on transparency, but what we are saying is that further regulatory intervention is not necessary. Greater transparency for commercial customers can be achieved by the market, but as with contract certainty what is needed is time.
The measures outlined above need to bed in properly to produce benefits. There also needs to be industry commitment to those measures. The FSA should be there in the background monitoring our efforts; offering just enough regulatory encouragement to ensure that we reach an industry solution for transparency that we can all work with.
